Micro financing in Montreal..?
September 10th, 2007
MontrealTechWatch has a great post regarding Angel financing in Montreal. I spoke to a VC analyst some time ago and it’s true that VC’s want to invest as much money as possible in as little projects as possible. It only makes sense to them. If you have $100M then you’d want to minimize the workload by investing 1M$ in 100 projects. It’s sad to say but you don’t want to invest $100K in 1000 projects. That wouldn’t be efficient at all and I must confess that I agree with them on that point. Investing in too many projects require more resources to monitor those projects and it lowers any potential gains they can make over time.
I guess this is something WE do all the time in a way. In order words, why bother putting a little bit of money in many bank accounts when we can put all our money in a few accounts that have different risk levels as long as our overall risk level is acceptable..? I don’t think anyone would feel very excited about having to deal with a dozen of so bank accounts. That would be way too much work. In that way, same goes with VC’s.
With that in mind, I also agree with Heri on the fact that some people don’t need a lot of money. I, for instance, am working on a project where I don’t need a full scale datacenter to support my project. Of course, if you give me $2M then I might re-think my wish-list but I don’t need that much money, at least not for the first year or so. But on the other side, I could use a few $10K’s to pay for a full time programmer, an artist, etc.
So what to do? Garage’s idea about a seed fund is nice. Put some money in a high risk, high reward fund. Let a college graduate (tech-savvy and low paid) manage it. A one or two million dollar fund could go quite far especially if there is a $100K investment limit. I don’t know about you but I could do a LOT of things with that much money and I’m not talking about buying Aeron chairs.
Other than “micro-financing”, I believe that an incubator would be welcomed as long as they don’t get too much participation in return of a small investment. Y Combinator, for example, received bad critics for getting a too big participation while bringing-in little value. While I don’t want to bring the eternal issue of participation and % of shares, it’s often better to have a little piece of something big than a big piece of nothing. Small companies often have the same needs as larger ones do. No one is an Internet marketing, accounting, HR guru and getting some help/coaching through an incubator is a nice thing.
Posted in Incubator, Startups, Venture capital, business, investissement | Comments (1)
September 10th, 2007 at 2:46 pm
The challenge for VCs is whether or not they can change their mindset substantially enough to run a lightweight, fast-moving early stage seed fund. The funding strategy and approach (i.e. due diligence, legal, etc.) has to be hugely different than what VCs normally go through.
As for Y Combinator, there may have been some early grumbling about the value they bring, but having seen it first hand, talking to Y Combinator funded companies and seeing the overall success rate, I don’t think anyone would say that anymore. And in fact, we now have copycats like TechStars emerging.
Incubators of the Y Combinator variety can work. Personally I love the model. Whether you can get enough ultra high quality companies on board, along with the right investors, advisers, etc. is another question.